Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 63: Externalities vs Internalities: A Theory of Political Integration

Tore Ellingsen ()
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Tore Ellingsen: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden

Abstract: Decentralized government lead to inter-regional externalities. Whereas an integratedjurisdiction solves the externality problem, centralized government entails other costs - in particular a neglect for minority interests. The paper models formally the trade-off between these two forces in determining the optimum as well as the equilibrium design of jurisdictions. Both the relative size of regions and the distribution of tastes are shown to be important parameters of the problem.

Keywords: Jurisdictions; integration; centralization; public goods; the State

JEL-codes: H11; H73

18 pages, August 1995

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